Delphi files to void labor contracts

Seeks to shed 'unprofitable' GM pacts

SAN FRANCISCO (MarketWatch) -- Giant auto-parts maker Delphi Corp., standing by its earlier threat, asked a bankruptcy court on Friday to void its labor contract with the United Auto Workers after the union rejected Delphi's latest demands to cut wages and benefits.

Union leaders have threatened that canceling the contract would trigger a strike likely to be felt throughout much of the U.S. auto industry. A strike would be especially hard on General Motors Corp.
GM, +0.11%
which relies heavily on Delphi parts to keep its assembly lines moving.

Delphi, which sought Chapter 11 in October, had warned for months that if the two sides could not reach agreement by March 30, it would ask Judge Robert Drain, overseeing its bankruptcy case in New York, to toss out its contract with some 24,000 UAW workers.

The move got a rough reception in Michigan union halls.

"Delphi's misuse of the bankruptcy procedure to circumvent the collective bargaining process and slash jobs and wages and drastically reduce health care, retirement and other hard-won benefits or eliminate them altogether is a travesty and a concern for every American," UAW President Ron Gettelfinger and Vice President Richard Shoemaker said in a statement.

Delphi's request sets in motion a process that includes a hearing on May 9 and May 10 that will give anyone objecting to Delphi's motions a chance to air their views.

By scheduling the hearing five weeks from now, rather than the customary 14 days, the court is giving both sides time to resolve their differences.

Meanwhile, Delphi's existing contract with the UAW remains in place and the Troy, Mich.-based company said it would continue talks with union representatives.

"The implications of Delphi's actions today are severe, but not surprising," said Patrick Anderson, a principal in Anderson Economic Group LLC in East Lansing, Mich.

"Either Delphi reaches a settlement with the union, or they move to liquidation. I think we're going to see liquidation. Much of the rhetoric we're hearing is based on a reluctance to recognize reality. But Delphi can't sustain itself with the wages and benefits the UAW has fought for over the past 30 or 40 years," he added.

Delphi, spun off by GM in 1999, is GM's biggest parts supplier. Any disruption in the flow of parts to GM's assembly lines could cripple the struggling carmaker's production.

GM shares fell as much as 3% to $20.34 in early action on heavier-than-usual volume before recovering to close with a 1% gain at $21.27.

Unwinding ties to GM

While squaring off against the union, Delphi
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also moved to shed what it calls "certain unprofitable General Motors contracts" if, as planned, it is to emerge from bankruptcy in the first half of 2007.

"We need GM to cover a greater portion of the costs of manufacturing products for GM at plants that bear the burden of our legacy costs. We simply cannot continue to sell products at a loss," Delphi Chief Executive Officer Robert "Steve" Miller said in a statement.

The company said that while its initial request involves dropping less than 10% of its current contracts with GM, that adds up to about half of the annual revenue its North American operations receive from GM.

Prior to its bankruptcy, about 55% of Delphi's revenue flowed from GM, totaling nearly $15.42 billion in 2004, the last full-year data available. But Delphi's business with GM has been shrinking as GM's own share of the North American car market declines, prompting Delphi to secure orders elsewhere.

Delphi also said it sent a letter to GM asking to renegotiate the terms of more than 400 commercial agreements with expiration dates between October 1, 2005 and March 31, 2006.

"We disagree with Delphi's approach but we anticipated that this step might be taken," Rick Wagoner, GM's chairman and chief executive said in a statement. "GM expects Delphi to honor its public commitments to avoid any disruption to GM operations." See full story.

The bankruptcy court has set a May 12 hearing to review Delphi's request to reject some of its GM contracts.

Beyond the cluster of May hearings, it could take weeks or even months before Judge Drain rules to grant or reject Delphi's requests, with many auto industry analysts predicting he will keep pressure on both sides to avert a strike, bearing in mind the thousands of jobs and millions of dollars at stake.

As part of the wide ranging restructuring plan laid out Friday, Delphi said it aims to cut its worldwide salaried workforce by 25%, eliminating about 8,500 jobs. The company also said it is freezing its current hourly pension plan as of Oct. 1, and its current salaried pension plan as of Jan. 1, 2007.

Soaring labor, health and benefit costs are frequently cited by Delphi, GM and other automotive industry companies as a major factor behind their high costs and struggle to remain competitive in an increasingly global marketplace.

Exiting product lines

Delphi also announced Friday plans to wind down a host of non-core product lines by 2008, concentrating instead on what Rodney O'Neal, Delphi's president and chief operating officer, called "products with greater electronics content, precision manufacturing and complex, complete systems for our diverse customer base."

That is not good news for Delphi facilities making non-core products, which the company said included such lines as brake and chassis systems, catalysts, cockpits and instrument panels, door modules and latches, ride dynamics, steering and wheel bearings.

"We believe many of these product lines have the potential to compete successfully under new ownership that has the resources and capital to invest in them," O'Neal said.

The company said it expects to wind down about a third of its global manufacturing sites as it works to get back on its feet financially.

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